As a child, Jason Boyd used to sneak downstairs to listen to Stevie Wonder’s “I Just Called to Say I Love You” on the radio. Boyd was raised in a strict Christian household and knew he would get in big trouble if he was caught listening to such a frivolous song. But later it became one of the reasons he was inspired to forge a career in music. “I wanted to make people feel the way that song made me feel,” he explains.
Boyd succeeded and, under his stage name Poo Bear, became a collaborator with some of music’s biggest names. He has penned enormous hits — such as Justin Bieber’s “Despacito (Remix)” and for country singer Zac Brown — racking up 500 million sales and, over the past two decades, building himself one of the most lucrative song catalogues in the business.
The rights to the hits Boyd has written generate steady payments every time one is streamed, sold on CD or vinyl, played on the radio, performed live, covered by another artist or used in a television show, advertisement or video game. For artists, these are like a potentially valuable pension. Indeed, says Boyd from his home in Atlanta, Georgia, “I was taught to never sell your catalogue. It is your main income for an artist, apart from touring and recording.”
Yet two years ago, Boyd did just that, becoming one of the first musicians to sell his songbook to Hipgnosis Songs Fund, a UK fund that has raised £1.2bn from investors and is scooping up the rights to old hits that have been given new life in the streaming age. This year, artists as diverse as Barry Manilow, Blondie, Chrissie Hynde, Mötley Crüe’s Nikki Sixx and Wu-Tang Clan’s RZA have all sold to Hipgnosis. Among its 58,000 song rights, it has acquired shares in nearly 3,000 number ones and a third of the 30 most played songs to date on Spotify.
As artists starved of touring income because of coronavirus pandemic restrictions cash in on old classics, there are plenty of takers. According to music industry sources, the feeding frenzy for publishing rights has effectively doubled the value of such catalogues in the space of five years. Huge pools of money, which normally find a home in assets such as property or infrastructure, are backing companies such as Hipgnosis, Round Hill Music, Primary Wave and Concord.
Record companies are also getting in on the act. Earlier this week, Universal Music Group acquired Bob Dylan’s entire catalogue, stretching back six decades, for a nine-figure sum. “A lot of musicians will have no idea how rich they now are,” says Hartwig Masuch, chief executive of music company BMG.
The music industry had suffered a two-decade decline as traditional record labels struggled to adapt to the online world. Sales of CDs went into freefall at the turn of the century as illegal file sharing took off and companies such as Apple took a large chunk of the nascent legal online music market through its iTunes download service.
But streaming has convinced tens of millions of people to pay a monthly subscription fee to access millions of songs, rather than buying an occasional CD, and has quickly become dominant. Last year it accounted for 56 per cent of the $20bn of revenue generated by the global music industry, driving an 8 per cent rise in sales of recorded music.
These numbers have attracted investors but also triggered a fierce debate on how the £9.99 for Spotify Premium users pay each month is carved up between technology companies, record labels, artists, songwriters and publishing companies. Broken down, £1 generated in the digital industry will return 30p to Spotify or Apple, with 58.5p going to the label and the performer, according to Hipgnosis. The remaining 11.5p is the portion that is shared between publishing companies with rights to the song and the writers.
This situation has also led some artists to re-evaluate the value of their songs. The chief catalogue officer at Hipgnosis is Amy Thomson, who used to manage Seal and advise Kanye West. She says artists once held on to their song rights until they needed a lump sum, perhaps to pay for a divorce or to ease into retirement when reunion tours were no longer possible. But that is changing rapidly. “With the advent of Spotify, 30 million records woke up and got a new life,” she says.
Take Fleetwood Mac’s song “Dreams”. It first hit the top of the charts in 1977 but then faded compared with other numbers on the classic Rumours album. Yet the song has been reborn in the digital age, re-entering the US charts in 2018 after a video Twitter video that used it went viral, and then again last month, when videos based on the song and shared on TikTok triggered a new wave of mass popularity. Stevie Nicks, who wrote it, told CBS that the sudden resurgence of the old hit had “blown my mind” and posted her own TikTok video of “Dreams” too. Nicks has capitalised by selling her publishing rights to Primary Wave.
It is this kind of rebirth that has tempted other songwriters who might once have been reluctant to sell off their catalogues to cash in. Boyd is a case in point. He spurned previous offers to buy his songs — “I would make loads of money, which is great but what was the plan 10 years from now?” — but the emergence of specialist investors such as Hipgnosis, which can justify paying musicians three to four times more than the large record companies that sit on most of the world’s music publishing assets, changed his mind.
Boyd says he could have kept taking his annual cheque from the record company but felt he could trust Hipgnosis to properly value and grow his back catalogue. Now 42, but a long way from retiring, he also plans to invest in other things. “Don’t sell your catalogue? That’s old school,” he says.
Merck Mercuriadis sits in his empty glass office in west London and gestures towards a building on the horizon. “A five-minute song is the only art form that can take you from feeling you want to jump off that to making you feel invincible and that you can take on the world,” says the 57-year-old founder of Hipgnosis.
Mercuriadis, whose long career in the music industry includes stints managing Elton John and Beyoncé, is steeped in the romance of the music scene. He talks of how he lives near the Westway, the London highway that features in the work of The Clash, and has moved his growing team to a large floor of an imposing WeWork office in Notting Hill, a historically important area for the capital’s musical underground.
The point he wants to make is that music is part of the fabric of society and investors have woken up to the fact that songs generate income in good times and bad. Having ploughed money into the pockets of songwriters, artists and other owners of catalogues looking to sell up, Mercuriadis’s bet is that he can turn songs into an “asset class”, whether it be a share of a new Lady Gaga or Kanye West hit or of a well-worn classic such as Blondie’s “Heart of Glass”.
“Great, proven songs have predictable, reliable income. It is better than gold or oil,” he argues, comparing the steady rise in the value of music with assets whose value can swing wildly depending on world events. The comparison forms the basis of Hipgnosis’s business model and, Mercuriadis says, explains record companies’ stock market struggles in the past.
“They were asking you to rely on someone’s track record of success and that track record continuing. But it doesn’t matter if you were The Rolling Stones or Paul McCartney or Nile Rodgers, you get it wrong as much as you get it right. That’s not investable,” he says. By contrast, Hipgnosis points to the income from a song like the 1980s Bon Jovi hit “Livin’ on a Prayer”, which has grown 44 per cent in the past decade, thanks largely to streaming revenue.
It is not the first time the reliability of proven hits has been packaged into financial instruments. In 1997, David Bowie explored the idea of cashing in on his master recordings before opting instead to partner with insurance company Prudential to issue “Bowie bonds” that used future royalties from his songs as collateral. The sale raised $55m but not long after came the illegal file-sharing boom started by Napster in 1999. Soon Bowie was arguing in The New York Times that copyright would lose most of its value as music became a commodity like “running water or electricity”.
Today, Mercuriadis argues that the rise of paid streaming subscriptions has made royalties linked to proven hits a far more valuable asset. “Music has gone from a discretionary luxury purchase to a utility purchase. People would rather bite off their right arm than give up their music subscription,” he says in defence of his spending spree.
One executive at a major label describes Hipgnosis’s buying spree as like “WeWork for music publishing”, reflecting fears the high valuations are creating a bubble. But Mercuriadis believes he has aligned the interests of artists and investors. The total net asset value return for those six months was 11.6 per cent and, he says, “everything we’ve bought will triple in value by the end of the decade”.
It is a view endorsed by Nile Rodgers, the Chic guitarist, songwriter and producer, who acts as an adviser on Hipgnosis’s acquisition strategy. Speaking from his studio in Connecticut, he explains that Chic’s album sales historically were “dragged along” by hits such as “Le Freak” but now album cuts such as “Happy Man” have been discovered by new fans. “‘Happy Man’ is worth more than when I released it [in 1978],” he says.
Early in his career, Rodgers recalls how “teeny, tiny portions” of money derived from songs he had written and performed would dribble through to him. The hugely profitable record industry of the 1970s was too busy chasing new hits to worry much about calculating what old ones were worth. It got away with it because most artists were just happy to get paid something. Rodgers compares it to when he was busking and people would steal money out of his hat but he wasn’t able to catch them. “You still loved doing it. You would think, I can’t believe I’m getting paid for this. But when people are making billions off music and don’t share it, that hurts,” he says.
Rodgers was not alone in wondering how the money from royalties was calculated. In 2000, the lack of transparency fuelled the creation of Kobalt Music Group by Willard Ahdritz, who was determined to prove what a song was really worth. After establishing a dance label in Sweden in the 1990s, he had learnt first-hand about industry inefficiencies. He decided to build a giant database that could match rights-holders to their royalties in the same way an airline booking system can plot the most efficient route.
Ahdritz wanted to blow up a system he describes as “handmade” and geared towards paying large sums to the biggest artists on a record label and virtually nothing to thousands of smaller acts. “When the music stops you have to have a chair to sit on. The artist didn’t have a chair to sit on,” he says. A decade later, Kobalt put its money where its mouth was, spending more than $1.3bn via its Kobalt Capital fund on song rights from artists such as Fleetwood Mac, Lorde and Swedish songwriter Max Martin, who has had more number ones than anyone except Lennon and McCartney.
Ahdritz’s data-driven system proved a revelation for musicians who, for the first time, could use a portal to see how much a song was earning in royalties and on what platform. Other companies, including BMG and Universal, have responded by providing more granular detail but it hasn’t eased concerns from artists that huge amounts of money being generated by their music on Spotify is not finding its way into their pockets. “Today, a hit has more than 60 billion microtransactions that have to be perfectly matched,” says Ahdritz, pointing to a song such as Ed Sheeran’s “Shape of You”, which was played billions of times across Spotify, YouTube, TikTok, Pandora and iTunes on top of traditional CD sales, radio airplay, live performances and placements in adverts or films.
Ahdritz, who used to keep a fake Viking helmet in his London office as a nod to both his heritage and strategy, says a technological approach was necessary to cope with the explosion of music consumption in the digital era. Whereas artists would once strive to write a mega hit, having signed up with a major label — a strategy he compares to Russian roulette but with “19 bullets in 20 chambers” — now a song can succeed anywhere in the world and on multiple platforms without a big bang.
For the likes of Mercuriadis and Ahdritz, the complexity of valuing music in the modern market is a sign of the imbalance of power in the industry. They predict the big labels that sit on millions of copyrights will come under pressure to split their large recorded businesses from the increasingly lucrative legacy catalogues, which generate a large portion of their profit but are not properly valued or exploited. “It will take five to seven years to come to fruition,” says Mercuriadis.
Major labels argue that the relationship between publishing and recorded music is symbiotic; the money generated from popular old songs is ploughed back into discovering the future hits. But some industry heavyweights believe the billions being spent by Hipgnosis and its rivals will undermine that structure. Masuch, who led the relaunch of BMG after the original label was merged with Sony in 2004, says: “This tears the whole industry apart.” He believes the pressure brought to bear by focused rivals will push the industry to become more “boring” by focusing on efficiency and reliability, and allowing small labels or artists to break themselves. “This change will be more fundamental than anything that happened over the past 20 years,” he says.
Yet traditional music labels do not appear to be weakened by the publishing resurgence. In the age of streaming, analysis company Music Business Worldwide estimates the majors — Universal, Sony and Warner Music — are making $1m an hour through streaming services such as Spotify, which is driven mostly by the biggest new artists. Mercuriadis may be spending money hand over fist but is a jaded hit by Barry Manilow or Bon Jovi really worth what he is investing in it?
One publishing industry veteran says Mercuriadis is right to target the “cream” of older artists but questions whether Hipgnosis will be able to prove it can increase the value of a hit like Blondie’s “Heart of Glass”, which is already widely exploited by larger companies that own different parts of the rights to the song. “No one can argue with the quality there but can he grow it to a size to justify what he’s paying? He’s not always the master of his own destiny,” the industry veteran says.
Despite driving the recovery of the recorded music industry, Spotify and YouTube are painted as villains in some quarters. Seven years ago, Radiohead’s Thom Yorke described the streaming service as “the last desperate fart of a dying corpse” and Taylor Swift pulled her entire catalogue from Spotify in protest over low royalty payments between 2014 and 2017.
That war died down but a new front has opened up over how money generated by the billions of music streams is shared between technology companies, record labels, performers and songwriters.
The issue became political in the UK after MPs began an investigation this autumn into the streaming market. They heard from aggrieved artists, such as Nadine Shah, who argued they were struggling to pay the rent based on the meagre sums their hit songs have generated for them. In the UK alone, streaming generated £1bn of revenue, with 114 billion songs streamed last year. Only 13 per cent of the income made its way to the artists.
Thomson of Hipgnosis says progress has been made but the structure remains “exploitative”. “There is a ravine between what the artist gets and what the music makes,” she says of the impending fight to tip the balance of digital music toward the creative side. “I am not hopeful this will be anything but a bloody battle,” she adds.
For Mercuriadis, the plight of the songwriter deserves to be highlighted most, as they are at the “bottom of the totem pole” in the carve-up of a song’s earnings. He started his career in a “post-Beatles paradigm”, where high-profile performers were also often the songwriters. Since the turn of the century, however, artists ranging from Britney Spears to Rihanna to Dua Lipa have used a roster of professionals to create hits. He describes it as “the industry’s dirty secret”.
Hipgnosis is working with its 72 songwriters to form a new group, in the mould of the screenwriters’ guild in America, to agitate to gain a more equitable share of the profits. Many are sceptical that musicians and songwriters would ever go on strike but some argue that the huge profits being made from their work by the big record labels have increased their bargaining power.
Boyd now charges $250,000 to write a song for a high-profile artist, a fee he describes as a “drop in the bucket” compared with the tens of millions of dollars a hit can generate in the digital era. But the increased transparency around streaming revenue and the value of catalogues has, he argues, highlighted what was a historically inequitable split of a song’s profits. “I now know how much money labels are making off our music. You can’t hide that any more.”
Nic Fildes is the FT’s telecoms correspondent
Follow @FTMag on Twitter to find out about our latest stories first. Listen to our podcast, Culture Call, where FT editors and special guests discuss life and art in the time of coronavirus. Subscribe on Apple, Spotify, or wherever you listen